FOREIGN DIRECT INVESTMENT DIVERSIFIES IN CHILE

- this year, Spain displaced the United States as the main investing country, says ECLAC study -

Chile is one of the region’s main recipients of foreign direct investment (FDI), reports ECLAC in the 1998 edition of its annual study, Foreign Investment in Latin America and the Caribbean. Since 1996, the country has attracted inflows of some US$5,000 million.

CHILE: FOREIGN DIRECT INVESTMENT FLOWS, 1990-1998
(In millions of dollars)

Source: ECLAC, Unit on Investment and Corporate Strategies, Division of Production, Productivity and Management

Positive performance by this investment is the result not only of the profitability of the projects undertaken, but Chile’s risk reduction and macroeconomic stability, argues ECLAC.

Sectors linked to the extraction and processing of natural resources have received more than 75% of FDI in recent years, while almost 50% went to mining, basically copper and gold.

While the manufacturing sector has seen its share of FDI fall, that going to services, particularly in the areas of electricity, telecommunications and finance, has grown. In 1997, services accounted for more than 50% of total inflows. Meanwhile, Spain became the main investing country, displacing the United States for the first time since 1974 - though this change was due to a single operation, the acquisition of 29% of the shares of the Chilean electrical holding, Enersis, by Endesa-España.

Although, thanks to the mining sector, most FDI flows have gone to new projects, the transfer of existing assets has also increased considerably recently. In 1997 mergers and acquisitions accounted for almost 40% of such investment.

The study identifies the following principal areas of interest for investors and the main strategies adopted in each case:

• Traditional exploitation of natural resources for export. Interest here centres on commodity production.

• Emerging activities, although these are of relatively less importance. Here, the search for access to national or regional market segments with high growth potential is most important, above all in services and some manufacturing. On occasions, this may include the search for know-how through association or alliance with local business people.

In 1998, foreign investment is expected to maintain its high levels, mainly as a result of ongoing construction projects such as Collahuasi, Lomas Bayas and Pelambres. At the same time, some companies already in operation (La Escondida, Candelaria and Cerro Colorado) are currently in the full throes of expanding their installations.

According to estimates by ECLAC’s Unit on Investment and Corporate Strategies, FDI flows to the region will reach some US$4,700 million in 1998. A significant part of this new investment will be in the form of purchases of local businesses by foreign companies. Among these purchases, the following stand out: Prosan (hygiene and toiletries) by the US company Procter & Gamble for US$375 million; the BHIF Bank by BBV for US$350 million; and the food company Dos en Uno by the Argentinian company Arcor for US$200 million.

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